Micro Unit 1 Reading Objectives
Intro to Econ:
• Define Economics, Scarcity, Economic Model, Marginal Benefit, Marginal Cost, Utility,
Opportunity Cost, ceteris paribus
• Distinguish between positive and normative statements
• Distinguish between Microeconomics and Macroeconomics
• Identify the categories of resources and give an example of each type
• Given data, be able to graph and to interpret a Budget Constraint
• Calculate the slope of a line
• Determine whether a line has a positive or negative slope
• Distinguish between a Command Economy and a Market Economy
Production Possibilities Frontiers:
• What is a Production Possibilities Frontier (PPF)?
• How is the shape of a PPF different from a Budget Line?
• Be able to explain the Law of Increasing Opportunity Costs
• What are the determinants that will cause the PPF to shift?
• Distinguish between allocative efficiency and productive efficiency.
Demand and Supply:
• What is Demand?
• What is the difference between Demand and Quantity Demanded?
• What causes a movement along a given Demand curve?
• What are the determinants that cause Demand to shift?
• Define the Law of Demand
• How does the Law of Demand relate to the Law of Diminishing Marginal Utility?
• Be able to draw a graph of Demand (make sure to label the axes and the line itself).
• What is Supply?
• What is the difference between Supply and Quantity Supplied?
• What causes a movement along a given Supply curve?
• What are the determinants that cause Supply to shift?
• Define the Law of Supply.
• Be able to draw a graph of Demand and Supply in equilibrium. Make sure to label the
axes, the lines, and the equilibrium price and quantity.
• Define Surplus. Is it a distance or an area? Illustrate it on graph.
• Define Shortage. Is it a distance or an area? Illustrate it on a graph.
• Be able to draw an increase or a decrease in Demand and to determine the effect on price
and quantity.
• Be able to draw an increase or a decrease in Supply and to determine the effect on price
and quantity.
• If Demand and Supply both shift simultaneously, be able to determine the effect on price
and quantity.
Efficiency:
• In a competitive market, does Demand share the same line as MB or MC?
• In a competitive market, does Supply share the same line as MB or MC?
• Explain why the competitive market equilibrium is also efficient.
• Explain why it is inefficient to produce a quantity that is greater than or less than the
equilibrium quantity.
Consumer Surplus, Producer Surplus, and Deadweight Loss:
• Define Consumer Surplus, Producer Surplus, Total Surplus, and Deadweight Loss.
• Be able to calculate CS, PS, TS, and DWL, and be able to illustrate each of them on a
graph. Are they distances or areas?
Price Controls:
• Define price ceiling, and be able to give an example of a price ceiling.
• Explain the effects of a binding price ceiling on a market. How does the quantity sold
compare with the equilibrium quantity in a market? How does the price compare with
the equilibrium price in a market? What is the effect on CS, PS, TS, and DWL?
• Define price floor, and be able to give an example of a price floor.
• Explain the effects of a binding price floor on a market. How does the quantity sold
compare with the equilibrium quantity in a market? How does the price compare with
the equilibrium price in a market? What is the effect on CS, PS, TS, and DWL?
• If a non-binding price control is imposed on a market, explain the effects on price,
quantity, and CS, PS, TS, and DWL as compared with the equilibrium.
• Define indifference curve.
• Draw a graph with several indifference curves. Be able to determine which curve has
higher total utility or lower total utility relative to the others.
• Given a graph with indifference curves, the prices of the two goods, and the budget,
be able to determine the consumer’s utility maximizing consumption choice.
• Given a price change in one of the goods, the budget, and either total utility, marginal
utility, or indifference curves, be able to derive 2 points on the consumer’s demand
curve and to draw a sketch of the consumer’s demand curve.
